PENNICHUCK WATER SPECIAL COMMITTEE
FEBRUARY 3, 2014 7:00 PM Aldermanic Chamber
ROLL CALL
ELECTION OF COMMITTEE CLERK
PUBLIC COMMENT
COMMUNICATIONS
Pennichuck Corporation Quarterly Report to the Sole Shareholder (City of Nashua Board of Aldermen) Quarter Ended September 30, 2013
From: Thomas J. Leonard, Chairman, Pennichuck Board of Directors Re: Merrimack Valley Regional Water District Nominee to Pennichuck Board of Directors
From: Thomas J. Leonard, Chairman, Pennichuck Board of Directors Re: Pennichuck Corporation – Rate Cases
From: Thomas J. Leonard, Chairman, Pennichuck Board of Directors Re: Distribution Center located on Will Street, Nashua
From: John L. Patenaude, Chief Executive Officer, Pennichuck Water Corporation Re: Water Infrastructure & Conservation Adjustment (WICA) Tariff List of Capital Projects - 2014-2016
From: Stephen M. Bennett, Esq., Corporation Counsel Re: Resolution R-14-006 Referred to Cmte – 1/28/14
UNFINISHED BUSINESS – None
NEW BUSINESS – RESOLUTIONS
R-14-006 Endorser: Alderman-at-Large Brian S. McCarthy Alderwoman Mary Ann Melizzi-Golja Alderman Sean M. McGuinness APPROVING THE PROPOSAL OF PENNICHUCK CORPORATION TO GIVE PENNICHUCK WATER WORKS, INC. AND PENNICHUCK EAST UTILITY, INC. AUTHORITY TO ENTER INTO LONG TERM LOANS FROM THE DRINKING WATER STATE REVOLVING FUNDS
NEW BUSINESS – ORDINANCES – None
PUBLIC COMMENT
REMARKS BY THE ALDERMEN
POSSIBLE NON-PUBLIC SESSION
ADJOURNMENT PIMBCTM K1l KIJ | Ip (MM L! iI II IImm pJ IMMIfJ
Pennichuck Corporation
Quarterly Report to the
Sole Shareholder (City of Nashua Board of Aldermen)
Quarter Ended September 30, 2013 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Executive Summary
• The Company continues to operate as planned providing excellent service to our customers with little or no disruption.
• Company revenues of $11.2 million for the quarter have decreased 8% over the same period for the prior year due to the weather conditions. Year-to-date revenues of $29.2 million are slightly below the prior year revenues of $29.6 million.
• The Company had operating income of $2.6 million in the third quarter of 2013 as compared to $4.8 million in the third quarter of 2012 due to lower revenues and increased amortization expense. On a year-to-date basis, the operating income for 2013 was $6.2 million compared to $7.9 million in 2012.
• The Company had a net income of $553,000 for the quarter ended September 30, 2013 as compared to a net income of $1.2 million for the quarter ended September 30, 2012. On a year-to-date basis, the Company had a loss of $0.5 million for 2013 as compared to a loss of $0.7 million in 2012.
• Earnings before interest taxes, depreciation and amortization (EBITDA) were $12.4 million for the nine months ended September 30, 2013 versus $9.7 million for the nine months ended September 30, 2012.
• Capital expenditures for the third quarter of 2013 were $1.4 million as compared to $2.1 million in the third quarter of 2012. Capital expenditures for 2013 on a year-to-date basis are $4.0 million compared to $4.3 million on a year-to-date basis in 2012.
• During the third quarter of 2013, the Company had positive cash flow of $1.4 million compared to a negative cash flow of $0.2 million in the third quarter of 2012. The Company had a positive cash flow of $0.7 million for 2013 on a year-to-date basis compared to a negative cash flow of $2.1 million on a year-to-date basis in 2012.
• The Company's regulated utilities filed individual rate cases with the New Hampshire Public Utilities Commission on May 31, 2013. Hearings by the Public Utilities Commission relative to temporary rates were held on October 22, 2013 for Pennichuck Water Works, Inc. and Pittsfield Aqueduct Company, Inc. and on October 23, 2013 for Pennichuck East Utility, Inc. The filings with the Commission and related materials are available on the Company's website (www.pennichuck.com) under the "Company Reports" caption.
• On July 18, 2013, 218 acres of land in Merrimack was placed in a permanent conservation easement with the Society for the Protection of New Hampshire Forests. Income of $887,000 was recognized in the third quarter of 2013 related to the sale of the easement.
2 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
It has been approximately 20 months since the City has acquired the shares of Pennichuck Corporation. Since the acquisition, we continue to operate as planned. We continue to provide excellent service to our customers and there has been little or no disruption in the Company's operations.
Unaudited Financial Highlights
Financial highlights on a Generally Accepted Accounting Principles ("GAAP") basis for the third quarter of 2013 as compared to the third quarter of 2012, and the nine months of 2013 as compared to the nine months of 2012, are as follows:
(SOOO's) Quarter Ended Year to Date September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012
Revenues Regulated Utilities $ 10,500 $ 11,469 $ 26,996 $ 27,536 Other 707 710 2,158 2,021 Total 11,207 12,179 29,154 29,557
Operating Expenses Regulated Utilities 7,957 6,768 20,893 19,786 Other 616 613 2,013 1,886 Total 8,573 7,381 22,906 21,672
Operating Income 2,634 4,798 6,248 7,885
Non-Operating Income (Expense) 4 (3) (3) (3,735)
Other Income (Expense) 892 (215) 887 1,612
Net Interest Expense (2,553) (2,540) (7,594) (7,002)
Pre-Tax Income (Loss) 977 2,040 (462) (1,240)
Income Tax Benefit (Expense) (424) (808) (69) 527
Net Income (Loss) $ 553 $ 1.232 $ (53 n $ _£71D
Revenues from the water utility operations for the quarter have decreased 8% over the prior year quarter from $11.5 million to $10.5 million due to the inclement weather in the quarter. Revenues for the quarter from the unregulated water service business are relatively flat at $0.7 million over the same period in the prior year.
For the nine months of 2013 versus the nine months of 2012, revenues have decreased 2% from $27.5 million to $27.0 million. For the nine months in 2013 versus 2012, the unregulated water service revenues have increased 7% from $2.0 million to $2.2 million due to an increase in unplanned maintenance by the service company customers.
3 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Operating Expenses for the quarter have increased approximately 16% from $7.4 million to $8.6 million mainly due to the increase in the amortization of the acquisition premium in the amount of $1.2 million. The increase in the amortization expense has no impact on the Company's cash flow. For the nine months of 2013 compared to 2012, expenses increased 6% due to the increased amortization of the acquisition premium.
Operating Income decreased approximately 45% for the third quarter of 2013 as compared to the third quarter of 2012 due to the decrease in revenues and the increased amortization of the acquisition premium. On a year-to-date basis, operating income decreased approximately 21% over the prior year due to the decrease in revenues and the additional amortization of the acquisition premium.
Non-Operating Expenses in 2012 included certain transactional costs including severance costs related to the management team reorganization, directors and officers "tail" insurance cost, and payroll taxes related to the severance costs. These costs were required to be expensed under generally accepted accounting principles. The costs were part of the expenses accounted for in the $150 million City Acquisition debt.
Other Income in the amount of $0.9 million for 2013 reflects the net income associated with the selling of the conservation easement on 218 acres of land in Merrimack to the Society for the Protection of New Hampshire Forests.
Other Income for 2012 reflects the net income in the amount of $1.6 million realized from the sale of Parcel F which transpired prior to January 25, 2012, after the write-off of the underlying cost basis of that asset prior to the sale. This gain was subsequently adjusted during the year to reflect the real estate tax associated with the conversion of the land from its current use status.
Interest Expense for the third quarter was relatively flat. Interest expense increased year over year primarily due to the inclusion of the interest for the debt to the City, which was recorded beginning on January 25, 2012. The current year interest reflects the expense of the obligation to the City for a nine month period versus an eight month period in 2012.
The income tax expense in the current year reflects the tax treatment for the Municipal Acquisition Regulatory Asset (MARA), which is not deductible for tax purposes. Therefore, the tax rate is 15% versus the statutory rate benefit of 39.6%. For 2012, the tax treatment for the MARA as a non-deductible item was not accounted for until December; therefore, the tax benefit in 2012 leading up to year-end was recorded at the statutory rate.
The third quarter net income of $0.6 million for 2013 is less than the third quarter net income of $1.2 million for 2012 due to lower revenues and the increased amortization of the Municipal Acquisition Regulatory Asset. The loss for the nine months of 2013 is lower than the loss for 2012 due to the similar reasons as those in the quarter.
4 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Balance Sheet ($000's) As of As of September 30, 2013 December 31, 2012 Assets: (Unaudited) (Audited)
Property, Plant & Equipment, Net $ 165,058 $ 164,058
Current Assets:
Cash 1,567 872 Restricted Cash 5,764 5,443 Accounts Receivable 5,809 4,371 Inventory 770 751 Other Current Assets Note 1 666 1,515
Total Current Assets 14,576 12,952
Other Assets:
Acquisition Premium Note 2 81,174 83,261 Other Assets 15,791 16,259
Total Other Assets 96,965 99,520
TOTAL ASSETS 276.599 $ 276,530
Shareholders' Equity and Liabilities
Shareholders' Equity 27,694 $ 28,230
Bonds, Notes and Mortgages 174,811 174,279
Current Liabilities:
Line of Credit Current Portion of Long Term Debt 2,941 2,780 Other Current Liabilities 2,039 2,170
Total Current Liabilities 4,980 4,950
Other Long Term Liabilities:
CIAC, net 33,559 33,533 Deferred Income Taxes 20,871 20,625 Accrued Pension Liability Note3 8,971 8,855 Other Long Term Liabilities 5,713 6,058
Total Other Long Term Liabilities 69,114 69,071
TOTAL SHAREHOLDERS' EQUITY AND 276,599 $ 276.530 LIABILITIES
5 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Note 1 - At December 31, 2012, approximately $881,000 of this balance is comprised of prepaid property taxes, which were expensed in the first quarter of 2013, relating to taxes paid in November and December of 2012 for the second half of the property tax year ended March 31, 2013. The balance of prepaid property taxes as of September 30, 2013 is $0; approximately $50,000 of accrued property taxes are included in Other Current Liabilities as of September 30, 2013.
Note 2 - In accordance with GAAP, the Acquisition Premium is being written-off over the 30-year life of the principal of the City Acquisition Debt. The difference in the balance of Acquisition Premium between December 31, 2012 and September 30, 2013 is due to the amortization in the nine months of 2013.
Note 3 - During the nine months of 2013, $586,000 was contributed into the Pension Plan, while approximately $316,000 in benefit payments were made to participants and approximately $1,386,000 of investment income and appreciation was earned in the plan. As of December 31, 2012, the funding level of the plan, per Department of Labor defined comp utation rules, is in excess of 92% of the total year-end liability.
6 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Unaudited Cash Flow Statement
Cash Flow on a GAAP basis for the third quarter of 2013 as compared to the third quarter of 2012, and the year-to-date 2013 versus 2012, are as follows: ($000' s) Quarter Ended Year to Date September 30, September 30, September 30, September 30. 2013 2012 2013 2012 Operating Activities:
Net Income (Loss) $ 553 $ 1,232 $ (531) $ (713) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 2,589 1,076 5,393 3,294 Provision for Deferred Taxes 438 805 1 10 (181)
Stock-based Compensation Expense - - - 56 Other (7) (4) (18) (12) Changes in Assets and Liabilities: (Increase) Decrease in Accounts Receivable (212) (863) (1,455) (1,000) (Increase) Decrease in Inventory 39 (21) (19) (65) (Increase) Decrease in Other Assets 1,245 1,239 1,574 1,279 Increase (Decrease) in Accounts Payable (98) 512 278 749 Increase (Decrease) in Other Liabilities (398) (610) (265) 853
Net Cash Provided by (Used in) Operating Activities 4,149 3,366 5,067 4,260
Investing Activities:
Purchases of Property, Plant & Equipment, including the Debt Component of AFUDC (1,402) (2,564) (4,556) (4,891) (Increase) Decrease in Restricted Cash (465) (774) (321) (5,773)
Payments Made in Connection with Merger Activities - 329 - (143,059)
Change in Deferred Land Costs - (3) (3) 321
Net Cash Provided by (Used in) Investing Activities (1,867) (3,012) (4,880) (153,402)
Financing Activities:
Borrowings (Repayments) on Line of Credit (525) - - - Payments on Long-term Debt (569) 614 (2,261) (3,187) Contributions in Aid of Construction 2 5 70 33 Proceeds from Long-term Borrowings 262 (1,138) 2,947 120,344 Debt Issuance Costs (19) (1) (40) (24) Proceeds from Issuance of Common Stock - - - 30,024 Dividends Paid (68) (70) (208) (140)
Net Cash Provided by (Used in) Financing Activities (917) (590) 508 147,050
Increase (Decrease) in Cash and Cash Equivalents 1,365 (236) 695 (2,092) Cash and Cash Equivalents at Beginning of Period 202 1,131 872 2,987
Cash and Cash Equivalents at End of Period $ 1.567 $ 895 $ 1.567 $ 895
Financial information is available on the Company's website (www.Pennichuck.com) under the "Company Reports" caption.
7 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Capital Expenditures
Capital Expenditures in the third quarter of 2013 were $1.4 million as compared to $2.1 million in the third quarter of 2012. Capital Expenditures for the year-to-date were $4.0 million as compared to $4.3 million in 2012.
Major expenditures in the third quarter of 2013 included: ($000's)
Replacement of Carbon Medium - Water Treatment Plant $ 435 Meters - All Utilities 647 Middle Street, Amherst Main Replacement 413 Replacement of Liberty Tree Station (PEU) 362 Data Presentation (DPaC Work Order Project) 214 Asset Management and GIS Implementation 188 Ash Street Main Replacement 166 Pleasant Street Main Replacement 119 Berry Brook Dam Removal (PAC) 118 Other 1,288 Total $ 3.950
Regulated Utilities Rate Cases
As required in the Public Utilities Commission's approval of the Pennichuck acquisition by the City of Nashua, the Pennichuck regulated utilities each filed rate cases simultaneously on May 31, 2013. Filings with the Public Utilities Commission are available on the Company's website (www.pennichuck.com) under the "Company Reports" caption. Hearings at the Public Utilities Commission relative to temporary rates were held in Concord for each of the regulated utilities.
Financings
On May 3, 2013, Pennichuck East Utility, Inc. completed a $2.6 million financing with CoBank. The interest rate was locked in at 4.25% on the $925,000 20-year term loan and 3.62% on the $1,723,150 10-year term loan.
At the April 26, 2013 Board meeting, the Directors approved financing of $850,000 for Pennichuck East Utility, Inc. with funds available through the State Revolving Fund ("SRF"): $450,000 for the interconnection of the Company's Avery Estates water system in Londonderry to the Town of Hudson's water supply, and $400,000 for the funding of the fourth phase of the long-term main replacement project at Locke Lake in Barnstead, NH. The loans have been approved by the Sole Shareholder and the New Hampshire Public Utilities Commission. The loans are for a 20-year term with level payments. Documents related to the SRF loan for the Locke Lake main replacement project were executed on August 1, 2013. The SRF loan for the Avery Estates project was executed on August 19, 2013.
8 Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2013)
Conservation Easement
The Company closed on placing 218 acres of land in Merrimack in a permanent conservation easement with the Society for the Protection of New Hampshire Forests on July 18, 2013. Income in the amount of $887,000 was recognized by this transaction.
9 PENNICHUCK
25 MANCHESTER STREET PO Box 1947
MERRIMACK, NH D3054-1947
( S • 3 ) B82-5 1 9 1
FAX (6D3) 913-23D5
WWW.PENN1CHUCK.GDM
November 5, 2013
Mr. Brian McCarthy, President Nashua Board of Aldermen City of Nashua 229 Main Street Nashua, NH 03060
Re: Pennichuck Corporation
Dear President McCarthy:
The Nominating and Governance Committee of the Pennichuck Board of Directors has scheduled a public interview of Mr. Thomas R. Gaydos, the Merrimack Valley Regional Water District nominee to the Pennichuck Board of Directors. The public interview will take place at the Pennichuck Corporation Corporate Office, 25 Manchester Street, Merrimack, N.H., in the Board Room at 5:30 p.m. on Monday, December 9, 2013.
The members of the Board of Aldermen and members of the public are welcome to attend. As outlined in the attached Director Nomination Process which was provided to you in our May 10, 2013 letter, this is the second interview of Mr. Gaydos.
If any members of the Board of Aldermen have questions for the candidate, we respectfully request that you provide your questions to the Pennichuck Nominating and Governance Committee at the following address or email no later than December 5, 2013:
Chairman, Nominating and Governance Committee Attention: Suzanne L. Ansara, Corporate Secretary Pennichuck Corporation 25 Manchester Street Merrimack, NH 03054 Email : [email protected] Mr. Brian McCarthy, President Nashua Board of Aldermen November 5, 2013 Page Two
Any questions submitted will be subject to the review and discretion of the Chairman of the Nominating and Governance Committee.
Please contact me if you have any questions. I can be reached at 603-883-0797.
Regards,
Thomas J. Leonard Chairman of the Board cc. Nominating and Governance Committee Mayor Donnalee Lozeau Board of Aldermen Pennichuck Corporation - Board of Directors ("Board")
Director Nomination Process
Nominating and Governance Committee ("Committee")
1. Assess the Board
• Assessment of current Board members o Evaluate effectiveness, skill sets and performance o Full Board assessment o Board self-assessment • Review and discuss results within Committee and full Board • Identify needs - determine skills to be added to choose new members • Maintain By-Law requirements
2. If needs are outside the current Board or replacements of existing Board required
• Obtain potential recommendations from current Board members • If there are no Board recommendations, agree to a process that involves recruitment for particular skill sets
3. Candidate vetted by Committee - Resume to conform with By-Laws
• Perform background check similar to that conducted on current Board members
4. 1st Interview of potential candidate
• Committee will conduct interview of candidate in Non-Public Session • Establish a set of questions to be raised at 1st interview
5. 2nd Interview of potential candidate
• Inform full Board at Board meeting that the Committee has interviewed a potential candidate • Schedule an interview of the candidate at a public Committee meeting 30 days prior to the Board meeting date and notify members of the Board of Aldermen • Board of Aldermen may submit any questions they may have for the candidate to the Committee Chairman, at least 3 days prior to the public Committee interview • Conduct public interview
6. Prepare assessment of candidate for full Board consideration
7. Nominate candidate to full Board (Background check completed before nomination)
Full Board of Directors
1. Approve candidate for recommendation for approval to Sole Shareholder for the Annual Shareholder Meeting vote
2. If a new director is needed and falls outside of the normal schedule for inclusion at the Annual Shareholder Meeting, call a Special Meeting of the Sole Shareholder 30 days from the date of the Board's approval
Eff. 4/26/13 PENNICHUCK
2 5 MANCHESTER STREET
PQ BOX 1 BA7
MERRIMACK, NH Q3D54-1 947
!SQ3> B82-S1 9 1
FAX ( 6• 3) 913-23D5
WWW.Pl--NNICHIJCK.COM
December 5, 2013
Mr. Brian McCarthy President Nashua Board of Aldermen 229 Main Street Nashua, NH 03060
Re: Peiinichuck Corporation - Rate Cases
Dear President McCarthy:
As we indicated earlier this year, when the three regulated Peiinichuck utilities filed requests for permanent rate increases, it is our intent to keep our Sole Shareholder informed as we continue through the regulatory process. Recently the Public Utilities Commission (PUC) issued the orders discussed below approving temporary rates. The PUC is not expected to make a decision on permanent rates until next year.
Pennichuck Water Works, Inc. - Rate Case DW 13-130
Order No 25,598 was issued on November 22, 2013. Pennichuck Water Works, Inc. filed a request for a permanent rate increase of 0.12 percent. The PUC order provides that temporary rates be maintained at the same level as existing rates while the permanent rate case is pending.
Pennichuck East Utility. Inc. - Rate Case DW 13-126
Order 25,602 was issued on November 27, 2013. Pennichuck East Utility, Inc. filed a request for a permanent rate increase of 12.21 percent. The PUC Order approved a temporary rate increase of 7 percent while the permanent rate case is pending. The temporary rates will be reflected in bills issued after November 27, 2013, the date of the order. Pittslìcki Aqueduct Company, Inc. - Rate Case DW 13-128
Order 25,599 was issued on November 22, 2013. PiUsfield Aqueduct Company, Inc. filed a request for a permanent rate increase of 9.34 percent. The PUC Order approved a tempo?an iak, increase of 7 percent while lhe permanent rate case is pending. The temporary nites will Ix re Heeled in bills issued after November 22, 2013, the date of the order.
The orders are available on the company website (www.peniiichuck.com) and the New Hampshire Public Utilities Commission website (www.puc.rih.gov).
Please contact me at 603-913-2301, if you any questions relative to this matter.
Sincerely,
John L Patenaude Chief Executive Officer ee. Board of Aldermen Mayor Donnalee Lozeau Stephen Bennett, Corporation Counsel P E N N I C H UCK
25 MANCHESTER STREET FD Box 1 947
MERRIMACK, NH G3D54-1 947
Í6Q3) BB2-51 9 1
FAX ( 6 • 3 ) 913-Z3Q5
WWW.PENNlDHUCK.CaM
December 12, 2013
Mr. Brian McCarthy President, Nashua Board of Aldermen City of Nashua 229 Main Street Nashua, NH 03060
Dear President McCarthy:
The Board of Directors and the management team of Pennichuck Corporation have made extensive and multiple reviews of the Company's Distribution Center located on Will Street in Nashua. Based on our assessment we have determined that the Will Street facility is presently inadequate for Pennichuck's operations. The building, built in 1960 would require major renovation and greater space to adequately provide for the present and future needs of the business.
Some of the reasons the facility is currently inadequate are: 1. All vehicles must be parked outside. This requires pickup beds to be shoveled out during the winter. It also exposes materials in the pickup beds to theft. Outside storage of the vehicles also puts employees at risk of slips and falls during the winter months. 2. Insufficient space to maintain all key inventories inside. There is limited space to maintain inventory inside to protect it from environmental degradation; as such, a number of inventory items are stored outside the building within the fenced perimeter of the property. There is insufficient space within the building to maintain inventory in a caged area, providing for optimal inventory controls. 3. The vehicle maintenance facility is generally undersized and specifically will not accommodate the servicing of CNG vehicles which the Company has recently acquired and is expected to continue to acquire in the future. 4. Night time activities at this facility have become more frequent as the Company has expanded. Equipment noise, back-up alarms, tailgates banging, etc. are a problem with the residential neighborhood. 5. Inadequate meter testing and storage facilities. 6. Property is undersized overall. Employees must park off-site at rented parking from, a loeal business that is currently not busy. If their business activities increase to normal levels, we will no longer be able to rent these parking spaces, and there will, be no available essential parking for employee vehicles. 7. Inadequate locker room facilities for both men and women, which is essential for the work performed out of this facility. 8. No meeting space for employee meetings.
In the past twelve months the company has viewed and considered numerous sites in the City of Nashua to relocate the Will Street operations. The sites viewed do not provide an adequate location and are costly to purchase. The company has reviewed company owned property and has determined that relocating the Will Street facility to Parcel N, near the Water Treatment Plant would be the best alternative for overall form, lit and functionality. The land is located on the Merrimack side of the campus north of the Water Treatment Plant. The relocation would allow both the Water Treatment Plant and the Distribution Center to operate on the same campus. The building will not impact the watershed as it would be built outside of the watershed on Parcel N.
By utilizing land currently owned by Pennichuek, the Company and ratepayers will save approximately $1 - 2 million on the overall cost of the project. The new facility would allow for the consolidation of the Company's engineering and operations staff into one facility, which should provide operating efficiencies. Also, the facility will allow the Company to house vehicles from operations and the distribution center inside the new facility. The decision relative to the replacement of the Will Street facility is consistent with our strategic plan.
The Company is in the process of hiring an architectural firm to design the facilities. The total project is estimated to cost between $2.5 and $3.2 million.
We have attached a map reflecting the location of Parcel N for your information.
Feel free to contact either Thomas J. Leonard or John Patenaude if you need further information.
Sincerely,
Thomas J. Leonard John L. Patenaude Chairman of the Board Chief Executive Officer cc. Board of Aldermen Donnalee Lozeau, Mayor - TT ¥
'.- -»I. "E » !. - - - »- '» «4 &
PROPOSED LOCATION MAIN OFFICE AND DISTRIBUTION MERRIMACK, NEW HAMPSHIRE PENNICHUCK
25 MANCHESTER STREET P • Box 1947
MERRIMACK, NH D3D54-1947
! 6 • 3} BS2-51 9 1
TAX 1603) 9 1 3-23D5
WWW.PENNICHUCK.DDM
December 17, 2013
Mr. Brian McCarthy, President Nashua Board of Aldermen City of Nashua 229 Main Street Nashua, NH 03060
Dear President McCarthy:
On December 23, 2013 Pennichuek Water Works, inc. will be filing its list of capital projects for the years 2014 to 2016 under its Water Infrastructure and Conservation Adjustment (WICA) Tariff.
The WICA was originally approved by the New Hampshire Public Utilities Commission in Order 25,230 issued June 9, 2011 in the Case Docket 10-091. The purpose of the WICA is to allow Pennichuck Water Works, Inc. recovery through a surcharge on customer bills for certain cost related to the replacement or rehabilitation of water mains, gate values and hydrants in the company's core system. The WICA surcharge allows the company to recover certain costs related to the projects which are incurred between rate cases.
On December 19, 2012 the Company filed a petition for approval of Water Infrastructure and Conservation Adjustment (WICA) proposed projects with the New Hampshire Public Utilities Commission. The Commission issued Order 25,510 on May 15, 2013 approving the 2013 capital projects. The Company's filing and the Commission's Order are available on the Company's website (www.pennichuck.com) and the New Hampshire Utilities Commission (www.PIJC.NH.gov). If approved the surcharge for the 2013 projects will become effective April 1,2014.
I am enclosing a copy of the WICA surcharge calculation foryear s 2013 to 2016. Note that the proposed monthly surcharge for a customer using 7 CCF of water is $0.27 versus the $0.47 projected in the DW-12-3 59 filing. The decrease is attributable to the lower than expected capital additions in 2013. The projected, qualifying capital additions for 2014 are $2.5 million which would increase the monthly surcharge by $0.43 for customers using 7 CCF of water per month,
Should you need further information relating to the WICA filing feel free to contact me at 603- 913-2301.
Sincerely,
John L. Patenaude Chief Executive Officer m Mayor Donnalee Lozeau Board of Aldermen PENNICHUCK WATER WORKS, INC. C WICA Surcharge Calculation Page 1 of 2 DW13-XXX Projections 2013 2014 2015 2Qlfi Plant Additions $ 1,567,382 $ 2,486,400 $ 2,503,600 $ 2,695,130
2013 Additions $ (12,801) $ (25,602) $ (25,602) $ (25,602) 2014 Additions $ (20,134) $ (40,268) $ (40,268) 2015 Additions $ (20,287) $ (40,574) 2016 Additions $ (21,846). Net Plant Additions Pre Tax Rate of Return 6.04% 04% 6.04% 0 Revenue Requirement "93,897 "I^IS $ 146^014" $ 156,357
p p ©c i ati o n 25,602 $ 40,268 40,574 43,692 Property T 40,219 $ 63,801 64,242 69,157
Overall Revenue Requirement ¿718_$ ,46 b S 250 829 ]T 269.2067 Cumulative Revenue Requirement > 39713 I 411 ?0A S _ 662,033 S " 931 238"
Water Revenues per DW 10-091 $ 26,997,163
Overall 0.59% 0.93% 0.93% 1.00% 0.59% 1.52% 2.45% 3.45%
Calculation of Pre Tax Rate of Return (Based on DW 11-028) Weighted Cosi h^Mmu^i Pre Tax Cost Debt 6 04% 1,000 6.04% Equity 0.00% 1.681 0 00% 6 04% 6.04%
20.34 $ 20, 5/8 inch Meter Charge 20.34 y$ Volumetric Charge 3.30 3.30 3.IH— w Average Single Family (CCF) 7.88 7 88 7.88 7.88 Monthly Usage 26.00 £ 26.00 moo" Total Month Charge i 46 34_ J _ M 46.34 I '46 34 0.27 $ 0.43 $ 0.43 $ 0.46 of Surcharge 0.27 $ 0.71 $ 1.14 $ 1.60 OFFICE OF CORPORATION COUNSEL CITY OF NASHUA
MEMORANDUM
TO: Board of Aldermen
FROM: Stephen M. Bennett, Esq., Corporation Counsel
DATE: January 24, 2014
RE: Resolution R-14-006
Attached please find additional information from Pennichuck Corporation regarding the loan proposals contained in R-14-006.
Attachment
Of 1 Telephone: (603) 589-3250 - FAX: (603) 589-3259 'Y'Â PENNICHUCK
jìl JAN 2 3 2014 ¡5
25 MANCHESTER STREET
PO BOX 1 94-7 Office of Corporation Counsel City of Nashua, NH MERRIMACK, NH D3054-1 947
( 6 • 3 ) 8 8 2-5 1 9 1
FAX (603) 913-23D5
WWW.PENNIDHUCK.CAM
VIA HAND DELIVERY
January 22, 2014
Stephen Bennett, Esq. Corporation Counsel City of Nashua City Hall P.O. Box 2019 Nashua, NH 03061-2019
Dear Attorney Bennett:
Introduction. As you know, the City of Nashua, New Hampshire (the "City") is the sole corporate shareholder of Pennichuck Corporation ("Pennichuck"). The City has been the sole shareholder since the acquisition of Pennichuck on January 25, 2012. The purpose for this letter is to request that the City, acting in its capacity as sole shareholder, approve several resolutions authorizing two of Pennichuck's regulated public water utility subsidiaries, Pennichuck Water Works, Inc. ("PWW") and Pennichuck East Utility, Inc. ("PEU"), to borrow funds from the State of New Hampshire pursuant to the State Drinking Water Revolving Loan Fund Program (the "SRF Program").
Background. As part of the City's acquisition of Pennichuck, in accordance with special legislation enacted by the State Legislature, and as unanimously approved by the Mayor and Board of Aldermen on January 11, 2011, the corporate structure of Pennichuck and its utility subsidiaries was retained. This corporate structure was retained for several reasons. First, the Mayor and Board of Aldermen desired to maintain stability and continuity for customers and employees of the Pennichuck utilities and the communities they serve. Second, retaining the corporate structure provided continuity for the existing relationships with regulatory agencies and financial/banking partners. Third, the Mayor and Board of Aldermen unanimously agreed that the corporate structure would encourage business-smart decisions and rely upon well-established governance principles of corporate law, pursuant to Pennichuck's Articles of Incorporation and its by-laws. -2-
Shareholder Approval of Borrowings Required, Under Article IX of Pennichuck's Articles of Incorporation, the City, acting in its capacity as Pennichuck's sole shareholder, must approve
"(3) any action to (A) create, incur or assume any indebtedness for borrowed money or guarantee any such indebtedness of any person, (B) issue or sell any debt securities or warrants or other rights to acquire any debt securities of the [Pennichuck] Corporation or any of its Subsidiaries, or (C) guarantee any debt securities of any person."
Proposed Borrowings from the SRF Program. Pennichuck requests the City's approval for three loans from the SRF Program to PWW, and two loans from the SRF Program to PEU. The specifics of these loans are described below.
(1) PWW Borrowings. Under the proposal, PWW would enter into two new long-term loans from the SRF Program for an aggregate total principal amount of $1,870,000, divided as follows:
(i) a loan in the principal amount of up to $1,540,000 to finance the cost of replacing approximately 7,080 linear feet of water main in the Nashua Core Water System, in Nashua and Amherst; and
(ii) a loan in the principal amount of up to $330,000 to finance the cost to upgrade the existing Timberline Booster Station in Nashua by replacing three existing pumps, originally installed in 1980 and 1986, with three new pumps to meet system demands on a consistent and peak usage basis.
(2) PEU Borrowings. Under the proposal, PEU would enter into three new long-term loans from the SRF Program for an aggregate total principal amount of $1,522,000, divided as follows:
(0 a loan in the principal amount of up to $400,000 to finance the cost of replacing approximately 6,000 linear feet of water main in the Phase 1 of the Winwood/Monroe section of the Locke Lake Water System, in Barnstead;
(ii) a loan in the principal amount of up to $550,000 to finance the cost of replacing approximately 8,500 feet of water main in that portion of the W&E Community Water System located in Windham; and
(iii) a loan in the principal amount of up to $572,000 to finance the cost of replacing the existing treatment/storage/pumping facility at the Hardwood Community Water System, known as the Hardwood Booster Station located in Windham.
The Lender - the SRF Program. The funds for these loans will be provided by the State of New Hampshire Drinking Water Revolving Loan Fund Program. This SRF Program is administered by the New Hampshire Department of Environmental Services. The SRF Program provides public and private water systems the opportunity to borrow funds on favorable terms at interest rates that are below commercial rates. A copy of the NHDES letter announcing that the PWW and PEU projects had been selected for funding is attached to this letter. -3 -
Terms of the SRF Borrowings. All of the loans will have the same favorable terms, which will be reflected in separate written Loan Agreements and Promissory Notes issued by each of PWW and PEU, as required by the SRF Program. Amounts advanced pursuant to the loans during construction will accrue interest at a rate of 1% per annum, and the total accrued interest will be due upon substantial completion of the project. The terms of the SRF loans will require repayment of the loan principal plus interest over a 20-year period commencing six months after the project is substantially complete. The current interest rate on these SRF Program borrowings is 2.72% per annum. The loans will be unsecured by any pledge of the assets of either PWW or PEU. The corporate parent, Pennichuck, will provide an unsecured corporate guaranty of the repayment of the loans in accordance with the terms of a Guaranty Agreement.
Approval by the Pennichuck Board of Directors. The Pennichuck Board of Directors has approved each of the loans to PWW and PEU to finance the projects listed above and recommends that the City authorize (i) PWW and PEU to enter into the Loan Agreements and the Promissory Notes, and (ii) Pennichuck to enter into the Guaranty Agreement.
Other Approvals. As regulated public utilities, PWW and PEU must obtain approval of each of the loans from the New Hampshire Public Utilities Commission, which will approve the loans if it finds the loans to be consistent with the public good. PWW and PEU have filed petitions for approval with the NHPUC and expect the NHPUC to consider the petitions promptly. Under the SRF Program, the loans must also be approved by the Governor and Executive Council.
Lower Costs Are Good for Customers. Pennichuck Corporation and its Board of Directors have determined that the capital projects to be financed by the SRF Program loans will allow PWW and PEU to continue to provide safe, adequate and reliable water service to their customers on a cost-effective basis. The terms of the financings through the SRF Program are very favorable compared to other alternatives and will result in lower financing costs that would be available under other debt options. These lower financing costs will be passed on to customers.
Requested Approvals. For the reasons described above, Pennichuck respectfully requests that the City, acting in its capacity as sole shareholder of Pennichuck and pursuant to Article IX (3) of Pennichuck's Articles of Incorporation, authorize the following actions:
RESOLVED, that the City hereby approves the borrowing by Pennichuck Water Works, Inc. of up to $1,540,000 to finance the cost of replacing about 7,080 linear feet of water main in the Nashua Core Water System, in Nashua and Amherst;
RESOLVED, that the City hereby approves the borrowing by Pennichuck Water Works, Inc. of up to $330,000 to finance the cost to upgrade the existing Timberline Booster Station in Nashua by replacing three existing pumps, originally installed in 1980 and 1986, with three new pumps to meet system demands on a consistent and peak usage basis;
RESOLVED, that the City hereby approves the borrowing by Pennichuck East Utility, Inc. of up to $400,000 to finance the cost of replacing about 6,000 linear feet of water main in the Phase 1 of the Win wood/Monroe section of the Locke Lake Water System, in Barn stead;
RESOLVED, that the City hereby approves the borrowing by Pennichuck East Utility, Inc. of up to $550,000 to finance the cost of replacing about 8,500 feet of water main in that portion of the W&E Community Water System located in Windham; -4-
RESOLVED, that the City hereby approves the borrowing by Pennichuck East Utility, Inc. of up to $572,000 to finance the cost of replacing the existing treatment/storage/pumping facility at the Hardwood Community Water System, known as the Hardwood Booster Station located in Windham;
RESOLVED, that the City hereby approves the guaranty by Pennichuck Corporation of the payment by each of P WW and PEU of each of the loans authorized in the prior resolutions; and
RESOLVED, that the City hereby authorizes Pennichuck Corporation, its Board of Directors and its Officers to take any and all actions to obtain all necessary approvals with respect to the actions described in these resolutions and to execute and deliver such documents as are necessary to effect the SRF loans and the Guaranty described in these resolutions.
Respectfully submitted,
PENNICHUCK CORPORATION
By Larry D. Goodhue Chief Financial Officer cc: Mayor Donna lee Lozeau The State of New Hampshire DEPARTMENT OF ENVIRONMENTAL SERVICES NHDES
Thomas S. Burack, Commissioner
August 19, 2013
DONALD WARE PENNICHUCK CORPORATION 25 MANCHESTER STREET PO BOX 1947 MERRIMACK NH 03054-1947
Subject: Drinking Water State Revolving Loan FY 2013 Project Priority List
Dear Mr. Ware:
The purpose of this letter is to inform you that the FY 2013 Drinking Water State Revolving Loan Project Priority List has been finalized and that the following list of projects are on the funded portion of the priority list:
Public Water System Project Description Project Amount
PEU Locke Lake Water Main Replacement $400,000 PEU- W & E Water Main Replacement $550,000 Pennichuck Water Works 2014 Main Replacement $1,540,000 Pennichuck Water Works Timberline BPS Upgrade $330,000 PEU- Gage Hill Water Main Replacement $550,000 Pennichuck Water Works Snow Station Upgrade $740,000 PEU- Hardwood Pump Station Replacement $572,000
Funding for these projects is available until June 2014. However, the Department of Environmental Services (DES) encourages you to move forward at this time to seek the authority to borrow. Please be advised that the current interest rates available at this time will be effective until June 2014 for those projects on the FY 2013 project priority list.
We ask that you keep DES informed of progress made toward seeking the authority to borrow. Should a project not move forward, please contact us immediately so we may offer those funds to other applicants on the priority list. If you have any questions please contact me at 271-2948.
Drinking water and Groundwater Bureau
DES Web site: www.des.nh.gov P.O. Box 95, 29 Hazen Drive, Concord, New Hampshire 03302-0095 Telephone: (603) 271-2513 • Fax: (603) 271-5171 • TDD Access: Relay NH 1-800-735-2964